Sunday, February 06, 2005

Farm Subsidies To Be Reduced in the U.S.?

I will believe it when I see it, but there is increasing pressure on the U.S. gubmnt to reduce and/or eliminate farm subsidies (registration req'd). Some of the pressure comes from taxpayers concerned about large fiscal deficits; some of it comes from foreign gubmnts who see the U.S. subsidies (and dumping of U.S. farm products abroad at prices substantially below costs) as unfair trading practices. [h/t to BrianF for the pointer; also take a look at what Ben Muse has posted recently on this same topic; his posting and links specifically address the foreign trade aspect of farm subsidies.] The quotations below are from the NYTimes:

Agriculture Department officials said Mr. Bush's proposals would cut federal payments to farmers by $587 million, or about 5 percent, next year and would save $5.7 billion in the coming decade.... Farm subsidies have been a major issue in global trade talks, as poor farmers in the developing world demand that the United States and other wealthy countries cut back subsidies for their domestic producers.

Predictably, farm lobby groups are opposing the reduced subsidies. At the risk of sounding a bit like Henry George, it is likely that reduced subsidies will have the biggest impact on the incomes of owners of fixed or immobile factors of production, such as land, production licences, and specialized human capital (mostly specialized in the mechanisms of feeding at the trough of the public fisc).

As an aside, I wonder what type of production function this spokesperson has in mind:

Mr. Collins, the Agriculture Department economist, said, "When the government subsidizes every bushel and every acre, it encourages large farm operations to grow larger."

Ordinarily, a per-unit subsidy to price-takers would not affect the minimum point on the LRATC and would not induce LR changes in the scale of operations (assuming free entry, which might be a mistaken assumption). Also, unless there are economies of scale in the paperwork involved with collecting subsidies, per acre subsidies would not necessarily induce movements to larger farms since the subsidies would generally be capitalized back into the rental cost of the land. What is it about U.S. farm subsidies that have increased the minimum efficient scale of farming?

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